Ask Econometrics Expert

When the U.S. Treasury developed its economic rescue plan in Fall 2008, an important part of this was its Troubled Asset Relief Plan (TARP). In its earliest drafts, the Treasury proposed to use a Dutch Auction to find buyers for "toxic" home mortgages that financial institutions owned. Financial institutions such as banks and savings and loans had foreclosed upon some of these mortgages and repossessed the home because some of their customers could not keep up with significant upward adjustments in their mortgage interest rates, or their customers had lost their jobs, etc. Others might default in the future because some of the financial institutions had unwisely granted too many "NINJA" mortgages (no income, no job, no assets).

As a result, financial institutions were sitting there with lots of partially paid for residential properties backed by mortgages, some of which were in default and some of which likely would go into default in the future. They wanted (many may still want) to get rid lots of these mortgages and sell them to the Treasury, or to risk-taking investors, thereby strengthening their balance sheets and freeing up money for other uses.

An immediate problem was that the Treasury didn't really know what most of these mortgages actually were worth (25 percent of their face value, 75 percent, or somewhere in between?), nor did it know the condition of all of these houses, some of which had been sitting vacant. The Treasury was not well-equipped to find out this information, either, since the troubled institutions were located all across the United States and Treasury personnel are limited.


(A) Why did the Treasury like the idea of a Dutch Auction? Explain its advantages (in principle) to the Treasury.


(B) Ultimately, the Treasury did not use the Dutch Auction approach because it concluded that several critical conditions that usually apply in well-run Dutch Auctions did not exist here. Think carefully about those conditions and explain why they wouldn't have been present in a Dutch Auction for toxic mortgages.

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9482697

Have any Question?


Related Questions in Econometrics

Monte carlo exercisein order to illustrate the sampling

Monte Carlo Exercise In order to illustrate the sampling theory for the least squares estimator, we will perform a Monte Carlo experiment based on the following statistical model and the attached design matrix y = Xβ + e ...

Economics and quantitative analysis linear regression

Economics and Quantitative Analysis Linear Regression Report Assignment - Background - In your role as an economic analyst, you have been asked the following question: how much does education influence wages? The Excel d ...

Basic econometrics research report group assignment -this

Basic Econometrics Research Report Group Assignment - This assignment uses data from the BUPA health insurance call centre. Each observation includes data from one call to the call centre. The variables describe several ...

Question - consider the following regression model for i 1

Question - Consider the following regression model for i = 1, ..., N: Yi = β1*X1i + β2*X2i + ui Note that there is no intercept in this model (so it is assumed that β0 = 0). a) Write down the least squares function minim ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As